LIMA (Reuters) - An ideological battle has split South America between open democracies embracing free markets and leftist regimes opposing them, Peru President Alan Garcia said on Friday.

Garcia, a former leftist whose first term in the 1980s ended in economic chaos, now fervently supports free trade and mainstream policies that have helped make Peru's economy one of the fastest-growing in the world.

"South America looks like it's in a type of Cold War, like the big ideological blocs of the 20th century," Garcia said at the Reuters Latin America Investment Summit.

Garcia said Chile, Peru, Colombia, Mexico and Panama favor open markets and are generating more jobs than leftist governments like Bolivia, Ecuador, Venezuela and Nicaragua.

He did not mention Latin American giants like Brazil, which tends to support policies favored by investors, or Argentina, which has blocked some agricultural exports to keep domestic prices down.

Garcia, who once favored nationalizing Peru's banks, now spends much of his time luring foreign companies to invest in the country's mining and energy sectors.

"The best (development) instrument there is today is the global market, big investment, and modernity," he said. "Old concepts of each country building itself up with its own resources or defending its market are totally obsolete."

Peru, which signed a free-trade agreement in December with the United States and hopes to clinch a deal this year with China, will pursue all potential trade deals.

"All free-trade deals that we can possibly have we will sign," Garcia said.

He said talks for a free-trade agreement between the European Union and the Andean Community have been held up because Peru and Colombia clearly support free markets, while Bolivia and Ecuador do not.

"Some of those who are negotiating don't know for sure if they want free trade," he said.